On 28 September 2020, the French government presented the draft finance bill for 2021 ("Draft Finance Bill") before the French ministerial council. It will be examined by the French deputies as from 12 October 2020 in view of its final adoption by December-end.
In line with the previous announcements of Emmanuel Macron, no tax increase is forecasted despite the COVID-19 sanitary crisis and the historical effort conducted by the French government to sustain the economy during this period.
On the contrary, the Draft Finance Bill decreases the tax burden and uses this as a tool to start-up the recovery of the French economy in the context of the French €100 billion relaunch plan presented to the ministerial council on 3 September 2020. ("Relaunch Plan").
The Draft Finance Bill goes ahead with the previous steps taken to decrease the corporate income taxation; it implements a new set of measures to reduce taxes on investment; it provides for temporary tax mitigation measures facilitating cash refinancing; it supports the green growth and environmental transition by implementing specific green tax incentives mainly for individuals (not covered in this note); and it simplifies some useless tax formalities.
The following presents the main tax measures of the Draft Finance Bill interesting French companies.
Direction maintained on current corporate income tax rate reduction
The Draft Finance Bill goes ahead with the previous steps taken to decrease the corporate income taxation.
The French corporate income tax rate will still progressively decrease down to 26.5% in 2021 (except for companies which turnover exceeds €250 million which will bear a 27.5% rate) and to 25% for all companies in 2022.
This will align France with the standard corporate income tax rate applicable in Europe.
Decrease of the tax burden on investments
Taxes on investment are based on the value of business assets and on the level of the investments realised by the companies and applies regardless of the profit or loss position of the companies. They are viewed as an obstacle to maintaining industry in France.
The Draft Finance Bill implements a new set of measures in relation hereto. This should decrease the tax burden on investments by €20 billion over the next two years.
Companies holding premises that they use to operate a business are subject to property taxes (namely, the CFE (Cotisation Foncière des Entreprises) and the land tax (Taxe foncière)). As from 2021, the Draft Finance Bill plans to decrease by half the rental value of industrial facilities which is used to levy those property taxes. The rental value which is currently assessed by applying a 8% or 12% rate to the acquisition cost of the land or construction would be reduced to 4% and 6%.
The exemption of CFE applicable to new businesses during the year of creation would also apply to extension of businesses and may be available during three years (instead of one).
The French business tax so called CVAE ("Contribution sur la valeur ajoutée des entreprises") is assessed on the added value produced by companies which turnover exceeds €152.500, irrespective of their profits. In accordance with the Draft Finance Bill, the CVAE rate would also be decreased from 1.5% to 0.75% with a correlative adjustment of the existing allowance benefiting to companies which turnover does not exceed €50 million.
In all instance, the aggregate amount payable for the CFE and CVAE is capped to 3% of the company's value added. The cap would also be decrease to 2%.
Temporary tax mitigation measures
The Draft Finance Bill provides for two temporary measures which aim at facilitating the refinancing of companies affected by the sanitary crisis. Those measures are also designed to enable companies to recover a better cash position, and strengthen their accounting position.
The first measure provides for a possible spread of the taxation of capital gains made upon realisation of a sale and leaseback operation over the duration of the financial lease within a limit of 15 years. This measure would apply, upon election, to sale and leaseback operations conducted by companies between 28 September 2020 and 31 December 2022.
The second measures would allow companies conducting a free revaluation of their tangible and financial assets to neutralize the taxation on the step-up. The taxation of the latent capital gain would be spread over 15 years for constructions and over 5 years for other assets for amortizable assets. The latent capital gain on non-amortizable assets would be taxed upon future disposals. This measure would apply to revaluations conducted by companies during a fiscal year closed between 31 December 2020 and 31 December 2022.
Lightening of the tax formalities burden
To simplify the management of the tax affairs of companies and fluidify their relationship with the French tax authorities, the Draft Finance Bill provides for the following measures:
- Creation of an optional VAT group regime for French VATpayers which are financially, economically and organisationally related. This measure transposes under French tax law the EU directive according to which a State can consider persons legally independent but financially related as a single VATpayer1 . This VAT group regime is already available in 20 other Member States. In France, it should enter into force in 2022 and start producing effects as from January 2023.
- Suppression of the formality of a registration of share capital increases / decreases before the tax centre.
- Suppression of the 1.25 surcharge applicable to self-employed individuals not affiliated to a chartered management centre.
Although the Draft Finance Bill may evolve along with the parliamentary debates, this first draft was quite well welcomed by the French largest employers federation (MEDEF) which now calls for an quick and efficient implementation of the measures2.
Authors: Emmanuelle Pontnau-Faure, Partner; Solène Guyon, Avocat à la Cour
1. Cf. article 11 of the EU Directive 2006/112
2.Cf. MEDEF press release on the Draft Finance Bill dated 28 September 2020
